Thursday, 17 May 2012

Swee Hong Limited ("Swee Hong" or "Company") is offering 97.8m shares comprising 68.5m New Shares and 29.3m Vendor shares at $0.225 each. 2.8m shares will be for the public and 95m shares via placement. The offer will close on 21 May 2012 at 12pm. The Company intend to use the funds to acquire equipment and machinery and to fund its expansion.

Swee Hong is principally engaged in civil engineering works and micro tunnelling works in Singapore. It currently has $46m order books. Revenue grew from $31.8m in FY09 to $84.4m in FY11. Net profit fluctuate from $8.8m in FY09 to $15.7m in FY10 before dropping to $12.3m in FY11. The FY starts from 1 Jul and ends on 30 Jun. For the 3 months ended 30 Sep 2011, the revenue was $27m and the net profit was $1.659m.

The NAV per share based on the enlarged share cap is 13.62 cents and the EPS for FY12 assuming the service agreement was in place will be around 3.18 cents. That translate into a historical PER of around 7.07x. The market cap will be around $82.91m.

The Company intend to distribute at least 20% of its net profit after tax attributable to shareholders as dividends for FY2012 and FY2013. Assuming EPS remained at 3.18 cents, that will mean the dividend is about 0.636 cents. That will mean the yield is around 2.82%. However, since the FY12 will be ending on 30 June, the dividend payout could be sooner. Unfortunately, i am assuming the net profit will be the same and i am not privy to the company's projected FY12 performance. In this regard, please take it with a huge pinch of salt.

I have to say that the Company is rather brave to go for an IPO under current market sentiments. Only time will tell if this is a act of bravery or foolishness. In any case, its listed competitors will include OKP Holdings and Hock Lian Seng. Accordingly to CapitalIQ, OKP is trading at FY12 PE of 6.5x and historical PE of 5.9x. Hock Lian Seng is at historical PE of 3.8x.

My personal view is that Swee Hong is already fairly valued at its IPO price. While the share price is low, it does not make sense to buy into this company under current market sentiments and where there are cheaper peers out there.